Irrevocable Trust vs. Will in California — When Does It Actually Make Sense?

My wife and I own a home in Orange County worth about $2.8M (bought for $650K in 2003), plus about $4M in retirement accounts and $1.5M in brokerage. Total estate ~$8.3M. We're both 62.

Our current attorney set up a revocable living trust years ago. Now a different advisor is pushing us toward an irrevocable trust, saying it will "protect us from estate taxes." But California doesn't have a state estate tax, and we're well under the federal exemption. Am I missing something?

The irrevocable trust would cost $12K to set up plus ongoing admin. Is this just fee generation or is there a real benefit?

At $8.3M combined, you're under the current federal exemption ($13.99M per person). So right now, no estate tax concern. Your revocable trust handles probate avoidance, which is the main goal for most Californians.

However — there are two scenarios where an irrevocable trust could matter:

1. TCJA sunset risk: If the exemption drops to ~$7M after 2025, a couple at $8.3M with appreciating assets could cross the line. An irrevocable trust locks assets out of the estate at today's value.
2. Medi-Cal/long-term care: If either of you might need nursing home care, assets in a revocable trust are countable. Irrevocable trust assets (with a 30-month lookback in CA) are not.

If neither of those apply, the revocable trust is fine. The California estate planning guide has a good breakdown of when each trust type makes sense.

Don't forget the Prop 19 angle. If you transfer the home via your revocable trust to your kids, they get the stepped-up basis for income tax but lose the property tax base. Under Prop 19, inherited homes that aren't used as a primary residence by the heir get reassessed. On a $2.8M home with a $650K basis, your kids' property tax could jump from ~$8K/year to ~$30K/year.

An irrevocable trust doesn't fix this (Prop 19 applies regardless), but it's something your advisor should be discussing alongside the trust choice.

That Prop 19 detail is exactly the kind of thing nobody has explained to us. Our kids won't live in the house. So no matter what trust we use, the property tax base resets?

Correct. Under Prop 19, the old parent-child exclusion (Prop 13/58) was eliminated for non-primary-residence transfers. If your kids inherit the home and rent it out or sell it, the county reassesses at market value. The only exception is if a child moves in as their primary residence within 1 year, and even then there's a $1M cap on the excluded value.

Some families are accelerating sales or doing partial interest transfers because of this. It's a separate issue from estate tax but often comes up in the same planning conversation.

The Medi-Cal point is huge and often overlooked. My mom had $2M in a revocable trust and it was all countable when she needed skilled nursing. The facility was $14K/month. We burned through $350K before we could get Medi-Cal coverage. An irrevocable trust set up 30+ months earlier would have protected all of it.

If there's any chance of needing long-term care, the irrevocable trust isn't fee generation — it's the cheapest insurance you'll ever buy.

One more consideration: asset protection. If either of you is in a profession with lawsuit risk (doctor, business owner, real estate investor), assets in a revocable trust are 100% reachable by creditors. An irrevocable trust, properly structured, puts them beyond reach.

For a couple with $8.3M and presumably some professional exposure, that $12K setup cost could be worth it just for the creditor protection alone. The estate tax piece is secondary.

I'm actually a dentist with my own practice, so the lawsuit point hits home. We've had one malpractice scare already (dismissed, but still).

Starting to think the irrevocable trust might make sense after all — not for estate tax reasons but for asset protection + Medi-Cal planning. Going to get a second opinion from an estate attorney who specializes in this.

As a dentist, definitely look into a DAPT (Domestic Asset Protection Trust) structure. California doesn't recognize DAPTs formed in-state, but you can use a Nevada or Delaware trust with a CA-based grantor. The Delaware trust guide covers dynasty trust options there.

Also, make sure your malpractice insurance has adequate tail coverage and that your practice entity (hopefully a professional corporation) has proper separation from personal assets. That's the first line of defense before trusts enter the picture.

Bumping because we just went through this exact analysis. $6M estate, Bay Area home, two adult kids. Our attorney ultimately recommended keeping the revocable trust but adding an ILIT for a $2M life insurance policy. The ILIT is technically irrevocable but way simpler than moving the house or investments into one. Total cost was $4K for the ILIT vs. $15K for a full irrevocable trust restructure. Sometimes the targeted approach is better than the nuclear option.